North-South Divide Marks Euro's Struggle

30.07.2012 12:13

WSJ: In Portugal, Finland, Two Different Views of Financial Crisis

Portuguese waiter Gonçalo Alexandre Costa Ribeiro has a personal take on Europe's North-South divide.

"The Northern Europeans tip more than the Southern Europeans," says Mr. Ribeiro, 22 years old, who works at a sushi restaurant in Vilamoura, a beach resort in Portugal's Algarve region. "I guess it's cultural, but also has to do with the economic situation of the two."

Though Finland and Portugal share a currency, their divergent economic outlooks reflect the divide between the euro-zone's strongest and weakest members. Finland's economy is still growing, and unemployment is low. In contrast, Portugal is suffering a high jobless rate and entering a second year of recession.

Such disparities, central to the euro zone's financial crisis, are in the spotlight heading into a week that brings a closely watched European Central Bank meeting Thursday. Last week ECB President Mario Draghi and the leaders of Germany and France vowed to do everything in their power to save the common currency. But the Bundesbank, Germany's fiercely independent central bank, Friday repeated its opposition to the ECB buying government bonds to help the currency area's weaker members.

Meanwhile, interviews with Portuguese and Finnish during summer holidays in both countries reveal starkly different views of life amid the euro-debt turmoil.

"We haven't felt the crisis," says Pentti Risto Ahonen, a retired dentist from Jyväskylä, Finland, who spends half of the year in the Algarve with his wife, Leena-Maija. "Finland isn't suffering the effects of it, except for those who sell products to the south."

The feeling of being almost untouched by economic turmoil is shared by Finns more than 2,000 miles away at a resort in Espoo, north of Helsinki. Here, where sunlight is shining nearly 24 hours a day, Finns flood into Serena, a ski resort that stays busy in the summer thanks to a water park.

"We are just beginning our family vacation, so we are mostly concerned about the weather," said homemaker Marja Laine, spending €94 ($115) for entrance for a family of four. Her husband, Jani, says the euro-zone crisis isn't on his mind. "For the moment it has not had any impact on us."

For Portuguese families though, the crisis is front and center.

 

Felipe Felipe, a 38-year-old banker from the city of Barreiro, south of Lisbon, says his family has been cutting expenses to make up for the higher taxes he is paying after Portugal put through an austerity program to meet the expectations of its international creditors.

As usual, Mr. Felipe brought his wife and two children to Vilamoura to spend two weeks. But he says they are coming this year only because they have a family house available. "We came with a budget of €2,000 for the four of us, which means we have to eat less at restaurants and stay more time in the house," Mr. Felipe says, while sunbathing at the beach.

With Portuguese unemployment at 15.2% in May, compared with 7.6% in Finland, many of Mr. Felipe's countrymen aren't vacationing.

Unemployment divides other northern and southern countries within the euro zone. Spain, for instance, has seen its jobless rate rise to a record 24.6% as it faces the aftermath of a real-estate bust. In the Netherlands, meanwhile, unemployment is at 5.1%.

Back in Vilamoura, Veli Jokinen, 71, a Finnish resident of the region for the past seven years, contends that Southern Europeans don't pay as much in taxes as their northern peers. "Finland has five million people who pay 40% in tax. Spain, which has some 45 million, meanwhile, pays much less in tax. We don't think it is right for the Finnish to pay for the citizens of those countries," says Mr. Jokinen, a retired business owner.

Ineke van Blooijs, 47, of the Netherlands, spending a week in Vilamoura with her husband, appreciated the weather but commented on the work ethic. "In the south, they work less and retire early," she said.

Many Portuguese—and statistics from the Organization of Economic Cooperation and Development—dispute the suggestion that Southern Europeans don't work as hard as people from the north. According to the OECD, a Portuguese worked in 2011 an average of 1,711 hours, compared with 1,378 in the Netherlands, 1,413 in Germany and 1,684 in Finland. The retirement ages among the countries also don't differ much, with Portugal's set at 65 and Finland's ranging from 63 to 68.

"There isn't a divide between the north and the south, at least not in terms of how much we work," says Olga Rodrigues, 48, a Portuguese secondary school teacher who was vacationing with her husband and four children in the Algarve.

Still, perceptions die hard. Two-thirds of Finns surveyed by national broadcaster Yle this month said they didn't want Finland to assume more financial responsibility to help stabilize the euro.

"I don't like it because it's a never-ending cycle, and it seems that Finland is always the first one to give money to other countries," Artur Gajewski, a Helsinki software programmer vacationing with his wife, Ann-Maj, and two young daughters, said.

Like many Finns, he pointed out that during a 1990s recession triggered by a banking-sector collapse, Finland put in place a program to cut spending, restore competitiveness and clean up the banking sector, including bank takeovers and compulsory mergers. It also sold off state assets and floated the currency to boost exports.

The situation got worse before it got better: GDP plummeted 15% in three years and unemployment reached nearly 20%, as social spending was cut—a deeply unpopular move in the Nordic welfare state. By the mid-1990s, helped by a currency devaluation, Finland's economy began to grow again as the overhaul programs and investments in R&D took root.

"Finns didn't get help from others during the '90s," said Janne Tarvainen, a 39-year-old Fin. "We learned. Now it's time for others to learn."

Write to Patricia Kowsmann

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